METROPOLITAN PROPERTY & CAS. INS. v. JC PENNEY CAS. INS.

• Decision Date: 04 December 1991
• Docket Number: Civ. No. 2:91CV00381(AHN).
• Citation: 780 F. Supp. 885
• Court: U.S. District Court — District of Connecticut
• Parties: METROPOLITAN PROPERTY AND CASUALTY INSURANCE COMPANY v. J.C. PENNEY CASUALTY INSURANCE COMPANY and Daniel J. McNamara.

780 F. Supp. 885

METROPOLITAN PROPERTY AND CASUALTY INSURANCE COMPANY v. J.C. PENNEY CASUALTY INSURANCE COMPANY and Daniel J. McNamara.

Civ. No. 2:91CV00381(AHN).

United States District Court, D. Connecticut, Hartford Division.

December 4, 1991.

COPYRIGHT MATERIAL OMITTED

Jeffrey L. Williams, Hebb & Gitlin, Hartford, Conn., for plaintiff.

Kenneth W. Williams, John E. Tenner, Robinson & Cole, Charles L. Howard, Shipman & Goodwin, Hartford, Conn., Mary G. Tacher, J.C. Penney Legal Dept., Dallas, Tex., for defendants.

RULING ON MOTION TO REMAND

NEVAS, District Judge.

In this action for injunctive relief, Metropolitan Property and Casualty Insurance Company ("Met") seeks to disqualify Daniel J. McNamara ("McNamara"), from serving as J.C. Penney Casualty Insurance Company's ("Penney") party-appointed member of a tripartite arbitration panel charged with arbitrating a dispute between Met and Penney. Specifically, Met seeks injunctive relief to (1) require Penney to remove McNamara as an arbitrator; (2) require McNamara to withdraw as an arbitrator; and (3) prohibit McNamara from serving as an arbitrator in this dispute. The action arises from Met's claim that McNamara committed arbitrator misconduct and exhibited evident partiality toward Penney prior to arbitrating a dispute between Met and Penney pursuant to a tripartite arbitration agreement.

Met files this motion to remand the case following removal from state court. Penney opposes the motion to remand. For the reasons below, the court grants Met's motion to remand.

I. Facts and Procedural History

On a motion to remand, the court construes all factual allegations in favor of the party seeking the remand. R.G. Barry Corp. v. Mushroom Makers, Inc., 612 F.2d 651, 655 (2d Cir.1979); Truglia v. KFC Corp., 692 F.Supp. 271, 275, (S.D.N.Y. 1988), aff'd, 875 F.2d 308 (2d Cir.1989); see also Cabalceta v. Standard Fruit Co., 883 F.2d 1553, 1561 (11th Cir.1989); Laughlin v. Prudential Ins. Co., 882 F.2d 187, 190 (5th Cir.1989). Accordingly, the relevant facts in this action are these.

On June 27, 1989 Met entered into a Master Agreement with Penney to purchase Penney's property and casualty insurance business for the price of $44 million. Pursuant to the Master Agreement, the parties entered into a Quota Share Reinsurance Agreement (the "Reinsurance Agreement") wherein Met agreed to reinsure several of Penney's other insurance sectors for which reserves were carried on Penney's books as of June 30, 1989. As partial consideration for the Reinsurance Agreement, Penney agreed to release and transfer to Met certain loss reserves associated with the reinsured policies. The parties also agreed that the loss reserves as of June 30, 1989 would be established according to prudent reserving customs and practices traditionally applied by Penney.

A dispute arose between Met and Penney concerning whether the loss reserves transferred to Met were established in accordance with the agreements. The Master Agreement contained a clause requiring the parties to submit to arbitration any dispute "which is not settled by mutual agreement." (Compl.Ex.A, at 50). The Master Agreement provided for a tripartite arbitration process whereby each party would select its own arbitrator and those two arbitrators, in turn, would select jointly a third member to the arbitration panel. Id. The Master Agreement also contained a clause specifying that the arbitration was to take place in Hartford, Connecticut and a choice of law clause in which Delaware law was to govern. Id. at 50-52.

On February 19, 1991, Met made a demand for arbitration regarding a dispute over the reinsurance reserves and requested that Penney name an arbitrator in accordance with the Master Agreement. On March 6, 1991, Penney notified Met of its selection of McNamara to serve as its party-appointed arbitrator on the panel.

Following McNamara's selection, Met learned that McNamara had engaged in ex parte meetings and discussions with Penney at its Dallas headquarters concerning the merits of it claims in the arbitration prior to his formal selection to the panel, accepted "hospitality" from Penney during those meetings, evaluated documentary evidence relevant to the arbitration proceeding prior to his selection as an arbitrator, attempted to discuss the merits of the case with Met's appointed arbitrator before the third arbitrator had been selected, and failed to reveal his ex parte activities to Met.

On April 15, 1991, in Connecticut Superior Court, Met filed an action seeking to disqualify McNamara on the grounds of arbitrator misconduct and evident partiality naming Penney and McNamara as defendants. On May 1, 1991, Penney filed a petition for removal pursuant to 28 U.S.C. § 1441(b). On May 6, 1991, Met filed this motion to remand. In response, McNamara and Penney filed motions to dismiss on May 17, 1991. In addition, on May 17, 1991, Penney filed a separate action in this court seeking to compel arbitration.

II. Discussion

Met seeks to remand this case on the grounds that Penney's Verified Petition for Removal from Connecticut Superior Court (the "Petition") does not come within the jurisdictional requirements for removal under federal statute. Because the court finds that neither a federal question nor complete diversity of citizenship exists here to confer jurisdiction on the court pursuant to 28 U.S.C. § 1441(b), the court remands this action to Connecticut Superior Court for further proceedings.

A. Jurisdictional Requirements for Removal

Section 1441(b) provides for the removal of a case from state to federal court in actions where (1) "the district courts have original jurisdiction founded on a claim or right arising under the Constitution, treaties or laws of the United States ..." or (2) "none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought." 28 U.S.C. § 1441(b).

At the outset, the court notes, and the parties agree, that the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-14, does not confer original jurisdiction on a district court within the scope of 28 U.S.C. § 1331. Moses H. Cohen Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 25 n. 32, 103 S.Ct. 927, 942 n. 32, 74 L.Ed.2d 765 (1983). Removal jurisdiction, moreover, cannot "be predicated upon the fact that a petition asserts rights under the Federal Arbitration Act." Drexel Burnham Lambert, Inc. v. Valenzuela Bock, 696 F.Supp. 957, 959 (S.D.N.Y.1988). Because the FAA is insufficient to confer removal jurisdiction under § 1441(b) and no other independent basis for federal jurisdiction has been asserted here, there "must be diversity of citizenship ... before removal can issue." Moses Cohen, 460 U.S. at 25 n. 32, 103 S.Ct. at 942 n. 32.

Accordingly, Penney can only remove this case to federal court if the parties satisfy the diversity of citizenship requirement of § 1441(b). In determining whether there is requisite diversity of citizenship here, the issue is whether McNamara is a party in interest properly joined and served as a defendant. If McNamara, who is a citizen of Connecticut, is a properly joined defendant, then diversity jurisdiction is defeated and the case must be remanded.

B. The Fraudulent Joinder Standard

The joinder of a defendant who resides in the state where the action is brought will not destroy diversity where the defendant is a "nominal" party "with no real, or direct interest in the controversy." Saxe, Bacon & Bolan, P.C. v. Martindale-Hubbell, 521 F.Supp. 1046, 1047 (S.D.N.Y.1981), aff'd, 710 F.2d 87 (2d Cir. 1983), citing Salem Trust Co. v. Mfr's Finance Co., 264 U.S. 182, 189-190, 44 S.Ct. 266, 267-268, 68 L.Ed. 628 (1924). The citizenship of a defendant, however, "who is a proper, even though not an indispensable, party must be considered when determining the existence of diversity." Dailey v. Elicker, 447 F.Supp. 436, 438 (D.Col. 1978), citing Oppenheim v. Sterling, 368 F.2d 516 (10th Cir.1966), cert. denied, 386 U.S. 1011, 87 S.Ct. 1357, 18 L.Ed.2d 441 (1967); 13 Wright, Miller & Cooper, Federal Practice and Procedure § 3606, at 626-628 (1975) ("Wright & Miller").

A defendant is nominal and his citizenship may be disregarded "if no cause of action or claim for relief is or could be stated against him ..." Martindale-Hubbell, 521 F.Supp. at 1048; see also Truglia, 692 F.Supp. at 274-275; Dailey, 447 F.Supp. at 438. The removing party bears the burden of establishing federal jurisdiction and "proving the nominal nature of the non-diverse party ..." Martindale-Hubbell, 521 F.Supp. at 1048; see also Cabalceta, 883 F.2d at 1561; Laughlin, 882 F.2d at 190; Mushroom Makers, 612 F.2d at 655; Truglia, 692 F.Supp. at 275; Dailey, 447 F.Supp. at 438. In determining whether the party seeking removal has met its burden, moreover, the court looks to the governing substantive law under which the right asserted by the plaintiff is to be enforced.¹ See Iowa Pub. Serv. Co. v. Medicine Bowl Coal Co., 556 F.2d 400, 404 (8th Cir.1977); Quinn v. Post, 262 F.Supp. 598 (S.D.N.Y.1967); see also Truglia, 692 F.Supp. at 275.

To sustain its burden, "defendant must show with specificity that the facts as stated in the complaint, under the governing law, form no basis for relief against the defendant who defeats diversity." Truglia, 692 F.Supp. at 275. The court resolves all disputed facts and any uncertainties or doubts about the state of the controlling substantive law in favor of the party seeking remand. Id.; see also Cabalceta, 883 F.2d at 1561; Laughlin, 882 F.2d at 190; American Mut. Liability Ins. Co. v. Flintkote Co., 565 F.Supp. 843, 845 (S.D.N.Y. 1983); Martindale-Hubbell, 521 F.Supp. at 1048.

The test for fraudulent joinder in a removal context has been summarized as follows:

a joinder may be fraudulent and sham if the allegations in the plaintiff's pleading with reference to the resident defendants are shown to be so clearly false and fictitious that

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